## _cr14228 - 6.8 percent of GDP in 2012/13. Revenue shortfalls in 2013/14 compared to the budget

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### Recent developments, outlook, and risks
- Real GDP growth averaged 7 percent over the past decade; driven by services, construction and low-technology manufacturing; labor-intensive agriculture has lagged.
- Headline inflation fell from a peak of 20 percent in December 2011 to about 6 percent in April 2014.
- Broad money (M3) and private sector credit growth declined from more than 20 percent in 2010 and 2011 to 10 and 15 percent, respectively, by end-2013.
- Current account developments:
  - widened to about 18 percent of GDP in 2011/12 (from about 9 percent in 2009/10 and 2010/11) owing to a surge in FDI, higher fuel prices, and one-off imports of thermal power equipment;
  - is estimated at 14 percent of GDP in 2012/13 as shocks waned and imports fell;
  - deteriorated again in the first half of 2013/14 driven by a decline in the price of gold and large demand for oil imports for power generation.
- Gross international reserves: US$4.62 billion at end-March 2014, equivalent to almost 4 months of current year imports of goods and services for 2013/14.
- Real effective exchange rate (REER) appreciated by 32 percent as of March 2014 from August 2011; nominal exchange rate depreciated by 3.5 percent between end-2012 and April 2014.
- Macroeconomic outlook and scenarios:
  - Economic growth projected at about 7 percent in the medium term.
  - Inflation expected to reach the authorities’ 5 percent target by mid-2014, absent major external price shocks and with a continued prudent BoT stance.
  - Baseline assuming construction of a natural gas pipeline and gas-fired power plants is completed in 2014/15: cheaper energy would benefit growth and the current account.
  - Current account deficit projected above 10 percent of GDP in the medium term given strong domestic demand and large imports related to sizable FDI.

### Fiscal developments, execution issues, and arrears
- Fiscal outturns and deviations:
  - Deficit (financing side) was 6.8 percent of GDP in 2012/13 compared to the 5.5 percent envisaged under the SCF.
  - Domestic revenues were below expectations by 0.7 percent (of GDP) in 2012/13.
  - Domestically financed spending was 0.4 percent (of GDP) higher than envisaged under the program in 2012/13.
- 2013/14 budget execution and shortfalls:
  - Updated projections suggested a likely shortfall in total revenues by 2 percent of GDP compared with the original budget.
  - Contributing factors: delays in introducing new taxes on SIM cards and bank transfers, lower gold prices, and weaker revenue buoyancy.
  - To achieve the original deficit target of 5 percent, authorities cut spending in the mid-year budget review undertaken in mid-March.
- Public financial management weaknesses:
  - Domestic unpaid claims (duration above 90 days) increased to 2 percent of GDP at end-March 2014 from 0.8 percent of GDP in June 2013.
  - Expenditure “floats” estimated at 6 percent of domestically financed spending or 1.3 percent of GDP in 2012/13.
  - Considerable delays in reconciling “above the line” deficit figures and financing data point to weaknesses in budget formulation, execution and monitoring.
- Pension and contingent fiscal risks:
  - Additional firm and contingent obligations from benefits under the pre-1999 non contributory pension system.
  - Further obligations from loans by several pension funds to finance government entities, presenting fiscal transparency challenges.
- Debt outlook:
  - Debt sustainability analysis finds Tanzania at low risk of debt distress.

### Key fiscal and policy priorities (next three years)
- Step up investment in infrastructure while protecting critical social spending; prioritize to preserve government debt sustainability.
- Prepare for natural gas:
  - If recoverable offshore natural gas deposits are confirmed commercially viable, sizable fiscal revenues would need management to benefit all Tanzanians.
  - Final decision on large-scale LNG development may not be made by natural gas companies until 2016, with production to begin no earlier than 2020.
  - Decisions on contracts and revenue management frameworks in the next few years will have long-term implications for equitable distribution of benefits.
- Political and institutional risks:
  - Constitutional review and general elections in October 2015 may create pressures to increase spending and complicate reform implementation.
- Regional integration risks:
  - Preparation for monetary union (scheduled for 2024) requires meeting convergence criteria and stemming fiscal and financial risks that could spill over across member countries.
- Other risks:
  - External shocks (food, fuel prices), a sharp slowdown in China affecting FDI, delays in gas pipeline and power plant construction, and fiscal risks from public enterprises.

### Program engagement, PSI request, and monitoring
- SCF and Article IV:
  - Tanzania concluded its final review under a Standby Credit Facility (SCF) arrangement and its Article IV consultations on April 25, 2014; the SCF expired on April 30, 2014.
- Authorities requested a three-year Policy Support Instrument (PSI) to be in place by the start of FY2014/15:
  - Objectives: underpin close policy dialogue with staff, provide a positive signal to donors and markets, and safeguard policy discipline.
  - Staff supports the authorities’ request for a PSI.
  - The program has been endorsed by the Cabinet of Ministers.
- Monitoring and program modalities:
  - PSI retains Quantitative Performance Criteria under the SCF as Assessment Criteria and the same indicative targets.
  - Structural benchmarks focus on: improving efficiency and revenue mobilization; strengthening debt and public enterprise management; advancing PFM and pension reforms; ensuring benefits of natural gas finds accrue to all Tanzanians.
  - Program monitoring based on end-June and end-December performances with specified Assessment Criteria, Indicative Targets and memorandum items.

### Monetary policy, exchange rate, and capital account liberalization
- Monetary stance and projections:
  - Aim to maintain inflation at around 5 percent in the medium term.
  - Reserve money projected to grow broadly in line with nominal GDP in 2014/15.
  - M3 projected to increase by 15.5 percent in 2014/15.
- Modernization of monetary framework:
  - BoT intends to gradually modernize from reserve money targeting to a forward-looking, interest rate-based framework.
  - Initial steps: review interbank money market functioning; study excess reserves–short-term rates relationships; strengthen transmission from policy interest rates to the real economy.
- Exchange rate policy:
  - BoT reiterated commitment to a flexible exchange rate regime; interventions for liquidity management and smoothing short-term fluctuations.
- Capital account liberalization:
  - First step: freer capital flows among EAC residents since June 2014.
  - Next step: extend freer flows to the rest of the world by end-June 2015, in line with EAC Common Market Protocol commitments.
  - Prudential safeguards during liberalization: restrictions on non-residents’ holdings of short-term securities and minimum holding periods; prioritize long-term flows while building regulatory and oversight capacity.
  - Structural benchmark: implement regulations on consolidated supervision as foreign banks enter and Tanzanian banks expand abroad.

### Natural gas prospects and revenue management guidance
- Resource estimates and timeline:
  - Recoverable offshore gas resources of at least 24-26 trillion cubic feet, potentially sufficient for a four-train LNG plant.
  - Further exploration underway; gas resources not yet declared commercially viable.
  - Final investment decision expected at the earliest in 2016 or 2017.
  - Total investment during development phase could amount to US$20-40 billion, with gas production starting in the 2020s.
- Staff advice (Box 1 summary):
  - Allocation between saving and spending should be guided by the macro-fiscal policy framework to delink spending from revenue volatility, strengthen long-term sustainability by saving for future generations, and accommodate some scaling-up of investments in physical and human capital.
  - Adopt an appropriate fiscal anchor or rule (one option: flexible rule based on the permanent income hypothesis); set the fiscal deficit (preferably the non-resource primary balance) annually consistent with the anchor.
  - Consider a resource fund (possibly managed by the central bank) to account for resource revenue and manage accumulated financial assets for precautionary purposes and future generations; such a fund should not have spending autonomy and budget financing should align with the fiscal anchor.
  - Require that all spending of resource revenue consistent with the fiscal anchor go through the ordinary budget and PFM framework and be subject to parliamentary oversight.
  - Develop long-term revenue forecasting capacity and reform budget and PFM frameworks to integrate natural resource revenue.

### Debt strategy, external non-concessional borrowing (ENCB), and public debt management
- Debt sustainability and fiscal policy:
  - DSA finds Tanzania at low risk of external debt distress assuming economic growth remains strong and the fiscal deficit gradually declines to 4–4½ percent of GDP over the medium term.
- 2014/15 budget target:
  - overall fiscal deficit equivalent to 4.9 percent of GDP.
  - allows moderate increase in infrastructure investment as a share of GDP and at least maintaining priority social services share.
- ENCB plans and ceilings:
  - Past SCF cumulative ENCB ceiling of US$3,388 million permitted contracting of US$700 million in 2013/14; about US$80 million contracted through December 2013; remaining US$620 million allocated for 2013/14.
  - New PSI: authorities intend to borrow US$2,420 million from January 2014 through June 2016; DSA suggests consistency with sustainability.
  - Projects include financing for a gas-fired power plant and an airport terminal (contracts close to being finalized).
  - Possible sizeable upfront bond issuance in 2014/15 once the sovereign rating process is completed (dependent on prevailing market conditions).
- Debt restructuring and arrears:
  - Stock of arrears to private external creditors from Air Tanzania plane leases estimated below 0.1 percent of GDP.
  - Authorities engaged in good faith efforts consistent with the Fund’s Lending into Arrears (LIA) policy.

### Structural reforms, PFM, VAT and arrears management
- VAT reform:
  - Close to completion; aims to modernize the VAT regime and broaden the tax base by significantly reducing exemptions.
  - Cabinet approved policy document; draft law submitted to Parliament in June 2014.
  - Effective implementation requires strengthening VAT administration, especially the refund mechanism.
- Domestic expenditure arrears:
  - High-level committee formed; preliminary estimate of outstanding unpaid claims (duration above 90 days): TSh1,098 billion at end-March 2013.
  - Measures: halt new multi-year projects in some ministries, central verification and payment framework, more conservative revenue projections, enhanced cash flow planning, timely validation of arrears, enforcement of sanctions against officers incurring unfunded obligations.
  - Public Expenditure Review with East AFRITAC: survey of payment arrears as of end-March 2014 begun and expected to be completed before end-September.
- Pension system reforms:
  - Task force assessed obligations to the Public Service Pension Fund and loans from pension funds to government projects, many not fully serviced.
  - Options: harmonize parameters by implementing changes recently applied to one fund to reduce actuarial deficit; revisit benefit formulas and contribution rates; merge schemes to improve efficiency.

### Financial sector oversight, soundness indicators, and reforms
- Financial sector reforms and supervision:
  - Progress on FSSA recommendations: collaboration committees for surveillance and crisis management/resolution; establishment of a credit reference database and bureaus.
  - Preparations for deeper, more sophisticated, and more internationally integrated financial sector as capital account liberalization proceeds.
  - Supervisory concerns: one Tanzanian bank has a major share of operations offshore; supervisors must ensure cross-jurisdictional compliance.
  - BoT updating regulations to reflect developments and EAMU convergence criteria; drafting regulations to support consolidated supervision.
- Financial soundness indicators (selected series, percent, end of period):
  - Claims on the non-government sector to GDP: series include 18.0; 19.9; 17.2; 18.1; 18.9; 18.5; 20.5; 21.2; 21.9; 22.5; 24.1.
  - Capital to risk-weighted assets: series include 18.5; 17.6; 18.4; 18.0; 17.6; 17.5; 19.5; 18.1; 18.3; 17.9; 19.3.
  - Gross NPLs to gross loans: series include 9.8; 6.7; 7.5; 8.2; 7.5; 8.1; 7.7; 8.1; 7.1; 6.4; 8.3.
  - Return on assets: series include 2.2; 2.5; 3.0; 2.5; 2.7; 2.6; 2.9; 2.7; 2.6; 2.5; 3.0.
  - Liquid assets to total assets: series include 39.5; 36.3; 35.1; 34.6; 34.5; 34.0; 35.0; 34.3; 33.3; 31.7; 32.9.
- Financial deepening and inclusion:
  - Technological innovations (e.g., mobile phones for transactions and savings) create opportunities and require speedy supervisory reform and effective domestic and international regulatory collaboration.

### Key quantitative projections and fiscal aggregates (selected figures preserved verbatim)
- Selected macro projections and fiscal ratios:
  - Real GDP growth (calendar year) projections: 6.4; 6.9; 7.0; 7.0; 7.2; 7.2; 7.0; 7.1; 7.0; 6.8 (series for 2010/11 through 2017/18 Proj.).
  - Consumer prices (period average): 7.0; 17.8; 11.6; 11.3; 7.2; 6.1; 5.1; 5.0; 5.0; 5.0.
  - Revenue (excluding grants) (percent of GDP): 16.4; 17.6; 18.1; 17.5; 19.9; 18.4; 19.4; 19.7; 19.9; 20.1.
  - Overall balance (including grants, percent of GDP): -6.6; -5.0; -5.8; -6.8; -5.0; -5.2; -4.9; -4.0; -4.0; -4.0.
  - Total public debt (percent of GDP): 39.4; 39.8; 41.6; 40.8; 43.3; 41.5; 42.7; 42.2; 42.5; 42.6.
- Fiscal tables highlights (Billions of TSh, selected entries from Table 2a):
  - Total revenue (selected series): 5,739; 7,221; 8,758; 8,443; 10,999; 11,538; 10,197; 12,304; 14,164; 16,101; 18277.
  - Tax revenue (selected series): 5,296; 6,480; 7,937; 7,730; 9,885; 10,395; 9,410; 11,099; 12,798; 14,562; 16548.
  - Total expenditure (selected series): 9,439; 10,765; 13,341; 13,543; 16,053; 16,708; 14,926; 16,881; 19,540; 21,773; 24660.
  - Overall balance after grants (cash basis, selected series): -2,321; -2,038; -2,805; -3,282; -2,734; -2,780; -2,896; -3,130; -2,866; -3,248; -3,658.
- External sector projections (Table 4, Millions of U.S. dollars, selected):
  - Current account (selected series): -2,215; -4,736; -4,319; -4,290; -5,085; -4,992; -5,163; -5,281; -5,536; -5,826.
  - Exports, f.o.b. (selected series): 4,896; 5,562; 5,888; 5,391; 6,539; 5,516; 6,067; 6,623; 7,257; 7,930.
  - Imports, f.o.b. (selected series): -8,012; -10,609; -11,000; -10,482; -12,256; -11,541; -12,440; -13,313; -14,310; -15,555.
  - Gross official reserves (BoT, Millions of U.S. dollars, selected): 3,610; 3,797; 4,233; 4,357; 4,501; 4,633; 5,153; 5,603; 6,087; 6,675.
  - Current account deficit (percent of GDP, selected): -9.4; -18.4; -14.3; -14.0; -15.2; -14.4; -13.4; -12.3; -11.7; -11.3.

### Staff appraisal, competitiveness, and reform sequencing
- Staff appraisal:
  - Program aims to further strengthen favorable macroeconomic performance.
  - Encouraged continuation of prudent macroeconomic policies to preserve public debt sustainability, consolidate gains in reducing inflation, and reduce external vulnerabilities.
- Competitiveness recommendations:
  - Exchange rate should reflect market conditions.
  - Increase international reserves (in months of imports cover).
  - Reduce non-tariff barriers; deregulate to curb impediments to export-oriented businesses.
  - Improve business climate, governance perceptions, and speed of commercial dispute resolution.
- Medium-term fiscal advice:
  - Further deficit reduction appropriate to stabilize government debt/GDP ratio.
  - Sustain fiscal consolidation, adopt prudent approach to non-concessional borrowing, initiate pension reforms, improve debt and public investment management capacity.
  - Prioritize infrastructure, education, health, and essential social services; broaden tax base for additional revenue mobilization.
- Reform implementation risks:
  - Spending pressures and difficulties in monitoring fiscal developments have contributed to arrears accumulation and budget deviations.
  - Reinvigorated implementation of structural reforms—including public financial management, energy, and statistics—needed to preserve macroeconomic stability and rapid economic growth.

*International Monetary Fund staff report, June 30, 2014.*

### 6.8 percent of GDP in 2012/13. Revenue shortfalls in 2013/14 compared to the budget

### _cr14228 - 6.8 percent of GDP in 2012/13. Revenue shortfalls in 2013/14 compared to the budget

### Recent developments, outlook, and risks
- Real GDP growth averaged 7 percent over the past decade, driven by services, construction and low-technology manufacturing; labor-intensive agriculture has lagged.
- Headline inflation fell from a peak of 20 percent in December 2011 to about 6 percent in April 2014.
- Broad money (M3) and private sector credit growth declined from more than 20 percent in 2010 and 2011 to 10 and 15 percent, respectively, by end-2013.
- The current account deficit:
  - widened to about 18 percent of GDP in 2011/12 (from about 9 percent in 2009/10 and 2010/11) owing to a surge in FDI, higher fuel prices, and one-off imports of thermal power equipment;
  - is estimated at 14 percent of GDP in 2012/13 as shocks waned and imports fell;
  - deteriorated again in the first half of 2013/14 driven by a decline in the price of gold and large demand for oil imports for power generation.
- Gross international reserves amounted to US$4.62 billion at end-March 2014, equivalent to almost 4 months of current year imports of goods and services for 2013/14.
- The real effective exchange rate (REER) appreciated by 32 percent as of March 2014 from August 2011; the nominal exchange rate depreciated by 3.5 percent between end-2012 and April 2014.
- Macroeconomic outlook:
  - Economic growth is projected at about 7 percent in the medium term.
  - Inflation is expected to reach the authorities’ 5 percent target by mid-2014, absent major external price shocks and with a continued prudent BoT stance.
  - Under the baseline that construction of a natural gas pipeline and gas-fired power plants is completed in 2014/15, cheaper energy would benefit growth and the current account.
  - The current account deficit is projected above 10 percent of GDP in the medium term given strong domestic demand and large imports related to sizable FDI.

### Fiscal developments and fiscal pressures
- The deficit (measured from the financing side) was 6.8 percent of GDP in 2012/13 compared to the 5.5 percent envisaged under the SCF.
- Revenue and spending deviations in 2012/13:
  - Domestic revenues were below expectations by 0.7 percent (of GDP).
  - Domestically financed spending was 0.4 percent (of GDP) higher than envisaged under the program.
- 2013/14 budget execution faced revenue shortfalls:
  - Updated projections suggested a likely shortfall in total revenues by 2 percent of GDP compared with the original budget.
  - Contributing factors included delays in introducing new taxes on SIM cards and bank transfers, lower gold prices, and weaker revenue buoyancy.
- Policy response:
  - To achieve the original deficit target of 5 percent, the authorities cut spending in the mid-year budget review undertaken in mid-March.
- Public financial management weaknesses:
  - Domestic unpaid claims (duration above 90 days) increased to 2 percent of GDP at end-March 2014 from 0.8 percent of GDP in June 2013.
  - Expenditure “floats” estimated at 6 percent of domestically financed spending or 1.3 percent of GDP in 2012/13.
  - Considerable delays in reconciling “above the line” deficit figures and financing data point to weaknesses in budget formulation, execution and monitoring.
- Pension system fiscal risks:
  - Additional firm and contingent obligations have built up from benefits in the non contributory pension system that preceded the 1999 reform.
  - Further obligations stem from loans by several pension funds to finance government entities, presenting fiscal transparency challenges.
- Debt outlook:
  - Based on the debt sustainability analysis, Tanzania remains at low risk of debt distress.

### Key challenges for policymakers over the next three years
- Step up needed investment in infrastructure while protecting critical social spending; these objectives require careful prioritization to preserve government debt sustainability.
- Prepare for natural gas:
  - If sizeable offshore natural gas deposits are confirmed as commercially viable, sizable fiscal revenues would need to be managed to bring benefits to all Tanzanians.
  - A final decision on whether to develop a large-scale LNG project using offshore gas resources may not be made by natural gas companies until 2016, with production to begin no earlier than 2020.
  - Decisions on contracts and revenue management frameworks in the next few years will have long-term implications for equitable distribution of benefits.
- Political and institutional pressures:
  - Ongoing constitutional review (including mainland-Zanzibar relations) and general elections in October 2015 may create pressures to increase spending and complicate reform implementation.
- Risks from EAC integration and monetary union preparations:
  - Preparation for monetary union (scheduled for 2024) requires meeting convergence criteria and stemming fiscal and financial risks that could spill over across member countries.
- Other risks:
  - External shocks (food, fuel prices), a sharp slowdown in China affecting FDI, delays in gas pipeline and power plant construction, and fiscal risks from public enterprises.

### Recent program engagement and policy support request
- Tanzania concluded its final review under a Standby Credit Facility (SCF) arrangement and its Article IV consultations on April 25, 2014; the SCF expired on April 30, 2014.
- Against the background of the challenges above, the authorities requested a three-year Policy Support Instrument (PSI) to be in place by the start of FY2014/15:
  - Objectives for the PSI: underpin close policy dialogue with staff, provide a positive signal to donors and markets, and safeguard policy discipline.
  - Staff supports the authorities’ request for a PSI.
- The program has been endorsed by the Cabinet of Ministers.

### Monetary and exchange rate policies (policy discussions)
- Monetary policy stance:
  - Aim to maintain inflation at around 5 percent in the medium term.
  - In 2014/15, reserve money is projected to grow broadly in line with nominal GDP.
  - M3 is projected to increase by 15.5 percent in 2014/15, somewhat faster than reserve money, reflecting expected financial development, reduced M3 velocity, and a slight increase in the money multiplier.
- Monetary framework modernization:
  - BoT intends to gradually modernize from reserve money targeting to a more forward-looking, interest rate-based framework as financial deepening progresses.
  - As a first step, BoT is reviewing interbank money market functioning, studying excess reserves–short-term rates relationships, and exploring ways to strengthen transmission from policy interest rates to the real economy.
- Exchange rate policy:
  - BoT reiterated commitment to a flexible exchange rate regime.
  - Discussions considered the existing system—BoT announces the price at which it will transact on the IFEM platform—and a possible auction mechanism; interventions should be for liquidity management and to smooth short-term fluctuations.
- Capital account liberalization:
  - Tanzania intends to gradually liberalize its capital account.
  - First step: freer capital flows among EAC residents since June 2014.
  - Next step: extend freer flows to the rest of the world by end-June 2015, in line with EAC Common Market Protocol commitments.
  - During liberalization, BoT will maintain prudential measures including restrictions on non-residents’ holdings of short-term securities and minimum holding periods, and prioritize long-term flows while building regulatory and oversight capacity.
  - The entry of foreign banks and emergence of Tanzanian banks abroad increases urgency to implement regulations on consolidated supervision (structural benchmark).

### Policy implications and priorities
- Preserve macroeconomic stability and debt sustainability while scaling up prioritized infrastructure spending and protecting critical social expenditures.
- Manage expectations and design robust frameworks for natural gas revenue management should commercial viability be confirmed.
- Address public financial management weaknesses to improve fiscal data quality and timeliness, including:
  - Reducing domestic unpaid claims and expenditure floats.
  - Reconciling “above the line” deficit figures with financing data.
- Strengthen fiscal transparency and limit contingent fiscal risks from pension obligations and public enterprises.
- Implement reforms to improve the business climate, including regulatory, institutional, and legal changes identified by the BRN business environment lab (regulations; access to land; taxation and fees; corruption; labor law and skill-set; contract enforcement, law and order).
- Continue prudent monetary policy to anchor inflation around 5 percent and pursue a gradual modernization of the monetary policy framework; manage exchange rate interventions for liquidity smoothing.
- Proceed with gradual capital account liberalization in line with EAC commitments while maintaining prudential safeguards and enhancing supervisory capacity, including consolidated supervision.

*International Monetary Fund staff report, June 30, 2014.*

### 20.      The authorities aim at balancing the debt stabilization objective with the need to

### _cr14228 - 20.      The authorities aim at balancing the debt stabilization objective with the need to

### Debt sustainability and fiscal policy
- Debt sustainability analysis (Country Report No. 14/120) finds Tanzania at low risk of external debt distress and that the public debt outlook is sustainable, assuming:
  - economic growth remains strong; and
  - the fiscal deficit gradually declines to 4–4½ percent of GDP over the medium term.
- 2014/15 budget target:
  - overall fiscal deficit equivalent to 4.9 percent of GDP.
  - aims at a moderate reduction in the deficit compared with the 2013/14 target, while allocating resources for a modest increase in infrastructure investment as a share of GDP and at least maintaining the share of spending on priority social services.
- Authorities’ fiscal priorities and constraints:
  - balance debt stabilization with infrastructure investment and priority social spending.
  - difficult tradeoffs in prioritizing expenditures and mobilizing additional revenues, given a gradual decline in grants.
  - budget is the sole mechanism to operationalize priorities, including the Big Results Now initiative.
- Revenue mobilization measures:
  - efforts to mobilize domestic revenues, including upcoming VAT reform.
  - program envisages further broadening the tax base, beyond the VAT reform.

### External non-concessional borrowing and public debt management
- Plans to use external non-concessional borrowing to finance infrastructure projects.
- Past SCF arrangement parameters and recent contracting:
  - cumulative ENCB ceiling of US$3,388 million set to permit contracting of US$700 million in 2013/14, consistent with the budget.
  - about US$80 million contracted through December 2013.
  - remaining amount allocated for 2013/14: US$620 million.
- New PSI borrowing plans:
  - authorities intend to borrow US$2,420 million from January 2014 through June 2016 for the new PSI, which the DSA suggests is consistent with sustainability.
  - projects include financing for a gas-fired power plant and an airport terminal (contracts close to being finalized).
  - possible sizeable upfront bond issuance in 2014/15 once the sovereign rating process is completed (dependent on prevailing market conditions).
- Debt restructuring and arrears:
  - progress in debt restructuring discussions with external creditors.
  - staff was made aware of a stock of arrears to private external creditors from Air Tanzania plane leases, estimated below 0.1 percent of GDP.
  - authorities have demonstrated and intend to continue good faith efforts, consistent with the Fund’s Lending into Arrears (LIA) policy, through frequent bilateral communication and working out a repayment plan.

### Financial sector oversight and regulatory reform
- Progress against Financial System Stability Assessment (FSSA) recommendations (June 2010):
  - actions include collaboration committees for surveillance and crisis management/resolution, establishment of a credit reference database and bureaus.
  - ongoing focus on addressing data gaps, developing credit information tools, and improving crisis framework.
- Preparations for deeper, more sophisticated, and more internationally integrated financial sector as capital account liberalization proceeds.
- Supervisory concerns:
  - one Tanzanian bank has a major share of operations offshore; supervisors must ensure compliance across jurisdictions.
  - Bank of Tanzania (BoT) working on updating regulations to reflect recent developments and EAMU convergence criteria; drafting regulations to support consolidated supervision.
- Monetary policy modernization:
  - authorities intend to transition from a reserve money targeting framework to an interest rate based framework; initial preparatory steps welcomed.
- Financial deepening and inclusion:
  - technological innovations (e.g., mobile phones for transactions and savings) create opportunities and require speedy supervisory reform and effective collaboration among regulators domestically and internationally.

### Natural gas reserves and revenue management
- Resource estimates and timeline:
  - recoverable offshore gas resources of at least 24-26 trillion cubic feet, potentially sufficient for a four-train LNG plant.
  - further exploration underway; gas resources not yet declared commercially viable.
  - final investment decision expected at the earliest in 2016 or 2017.
  - total investment during development phase could amount to US$20-40 billion, with gas production starting in the 2020s.
- Potential fiscal and development implications:
  - potentially significant revenues could be transformative if well managed.
  - authorities working on a revised gas policy framework to address inter-generational wealth management, integrate resource revenue in the budget framework, and institutionalize transparency and accountability.
- Box 1: Features of Natural Gas Revenue Management Framework (summary of staff advice)
  - allocation between saving and spending should be guided by the macro-fiscal policy framework to:
    - delink spending from revenue volatility;
    - strengthen long-term sustainability by savings for future generations; and
    - accommodate some scaling-up of investments in physical and human capital.
  - adopt an appropriate fiscal anchor or rule (one option: flexible rule based on the permanent income hypothesis); set the fiscal deficit (preferably the non-resource primary balance) annually consistent with the anchor.
  - consider a resource fund (possibly managed by the central bank) to account for resource revenue and manage accumulated financial assets for precautionary purposes and future generations; such a fund should not have spending autonomy and budget financing should align with the fiscal anchor.
  - require that all spending of resource revenue consistent with the fiscal anchor go through the ordinary budget and PFM framework and be subject to parliamentary oversight.
  - develop long-term revenue forecasting capacity and reform budget and PFM frameworks to integrate natural resource revenue.

### Structural reforms, PFM, arrears, and pensions
- VAT reform:
  - close to completion; aims to modernize the VAT regime and broaden the tax base by significantly reducing exemptions.
  - Cabinet approved policy document; draft law submitted to Parliament in June 2014, proximate to parliamentary debate on the 2014/15 budget.
  - effective implementation requires strengthening VAT administration, especially the refund mechanism.
- Domestic expenditure arrears:
  - authorities determined to stem and ultimately reverse increase in domestic expenditure arrears.
  - high-level committee formed and identified measures to prevent new arrears (e.g., halt in new multi-year projects in some ministries) and a framework for central verification and payment of old arrears.
  - further steps: more conservative revenue projections; enhanced cash flow planning; more timely and frequent validation of arrears; greater enforcement of sanctions against officers incurring obligations without budget resources.
  - survey of payment arrears as of end-March 2014 and analysis of measures underway (Public Expenditure Review and East AFRITAC).
- Pension system and public service obligations:
  - government task force completed a report assessing obligations to the Public Service Pension Fund (PSPF) and loans issued from several pension funds for government projects, many not being fully serviced.
  - discussions exploring modalities to address outstanding liabilities and parametric reforms to enhance sustainability across several funds.
  - option under consideration: harmonize parameters by implementing changes recently applied to one fund to substantially reduce actuarial deficit.

### Program modalities, monitoring, and structural benchmarks
- New PSI arrangement:
  - Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) detail policy commitments.
  - program monitoring based on end-June and end-December performances.
  - retains Quantitative Performance Criteria under the SCF as Assessment Criteria and the same indicative targets.
  - Structural benchmarks aim at: improving efficiency and revenue mobilization; strengthening debt and public enterprise management; advancing PFM and pension reforms; ensuring benefits of natural gas finds accrue to all Tanzanians.
- Public financial management priorities:
  - net reduction in stock of arrears; diminished use of expenditure floats at year-end; more timely compilation of fiscal outturn data consistent with financing data.
  - implement guidelines to prevent arrears accumulation and prepare a plan for gradual reduction of existing stock with verification and safeguards.
  - track net changes in stock of arrears to enhance meaningfulness of budget implementation.

### Staff appraisal, competitiveness, and risks
- Staff appraisal highlights:
  - program aims to further strengthen favorable macroeconomic performance.
  - encouragement to maintain prudent macroeconomic policies to preserve public debt sustainability, consolidate gains in reducing inflation, and reduce external vulnerabilities.
- Competitiveness and external sector recommendations:
  - greater focus on international competitiveness warranted as economy integrates further.
  - recommendations include: exchange rate to reflect market conditions; increase international reserves (in months of imports cover); reduce non-tariff barriers; deregulation to curb impediments to export-oriented businesses; improve business climate, governance perceptions, and speed of commercial dispute resolution.
- Medium-term fiscal advice:
  - further deficit reduction appropriate to stabilize government debt/GDP ratio.
  - sustain fiscal consolidation, adopt prudent approach to non-concessional borrowing, initiate pension reforms, improve debt and public investment management capacity.
  - prioritize infrastructure, education, health, and essential social services; broaden tax base for additional revenue mobilization.
- Fiscal risks and reform implementation risks:
  - spending pressures and difficulties in monitoring fiscal developments have contributed to arrears accumulation and budget deviations.
  - structural reforms have abated since mid-1990s to mid-2000s; recent programs show mixed records on structural benchmarks.
  - reinvigorated implementation of structural reforms—including public financial management, energy, and statistics—needed to preserve macroeconomic stability and rapid economic growth.

*International Monetary Fund — United Republic of Tanzania, selected excerpts from the IMF staff report and MEFP-related text.*

### 40.      Staff recommends approval of the PSI. Consistent with that, it is recommended that

### _cr14228 - 40.      Staff recommends approval of the PSI. Consistent with that, it is recommended that

### Staff recommendation and Article IV timing
- Staff recommends approval of the PSI.
- It is recommended that the next Article IV consultation be held on a 24-month cycle.

### Real sector and external developments (Figure 1 highlights)
- Real GDP growth has remained robust with strong performance in manufacturing and services (charts show GDP, Manufacturing, Services, percent).
- Power generation: recent recovery (Power generation, percent change).
- Gross reserves (USD million, rhs) and months of imports: cover of imports recovered slightly.
- Capital inflows declined, with foreign direct investment and foreign assistance shown (percent of GDP).
- Exports: decline in the value of exports during the past year; Gold exports and Exports of goods shown (percent of GDP).
- Imports: lower imports helped improve the external current account; Oil imports, Non-oil imports, CA deficit (-) (percent of GDP).

### Fiscal developments (Figure 2 and Tables 2a/2b)
- Tax revenue and composition (percent of GDP): Import duties, VAT, Excises, Income taxes, Other.
- Expenditure composition (percent of GDP): Wages and salaries, Interest payments, Goods, services, transfers, Development expenditure.
- Fiscal balance: SR projections and Actual (Percent of GDP).
- Public debt composition: Domestic and External (Percent of GDP).
- Tax-to-GDP ratio and cross-country comparison: EAC Tax Revenue (Percent of GDP) and Tax Revenue and GDP per Capita, 2012.
- Table 2a (Billions of Tanzanian Shillings) — Selected items (2014/15 Prog. through 2017/18 Proj. columns shown):
  - Total revenue: 5,739; 7,221; 8,758; 8,443; 10,999; 11,538; 10,197; 12,304; 14,164; 16,101; 18277
  - Tax revenue: 5,296; 6,480; 7,937; 7,730; 9,885; 10,395; 9,410; 11,099; 12,798; 14,562; 16548
  - Value-added tax: 1,531; 1,975; 2,309; 2,146; 2,722; 2,590; 2,366; 3,119; 3,751; 4,226; 4749
  - Total expenditure: 9,439; 10,765; 13,341; 13,543; 16,053; 16,708; 14,926; 16,881; 19,540; 21,773; 24660
  - Recurrent expenditure: 6,690; 6,990; 9,035; 9,444; 10,958; 11,063; 10,267; 11,624; 12,970; 14,540; 16395
  - Development expenditure: 2,749; 3,775; 4,306; 4,099; 5,095; 5,645; 4,659; 5,257; 6,570; 7,233; 8265
  - Overall balance before grants (cash basis, Billions TSh): -3,701; -3,543; -4,582; -5,101; -5,054; -5,170; -4,729; -4,577; -5,376; -5,672; -6383
  - Grants (Billions TSh): 1,627; 1,855; 1,777; 1,728; 2,320; 2,390; 1,832; 1,447; 2,510; 2,424; 2724
  - Overall balance after grants (cash basis, Billions TSh): -2,321; -2,038; -2,805; -3,282; -2,734; -2,780; -2,896; -3,130; -2,866; -3,248; -3,658
  - Financing (Billions TSh): 2,321; 2,038; 2,805; 3,282; 2,734; 2,780; 2,896; 3,130; 2,866; 3,248; 3658
- Table 2b (Percent of GDP) — Selected ratios (2014/15 Prog. through 2017/18 Proj. columns shown):
  - Total revenue: 16.4; 17.6; 18.1; 17.5; 19.9; 20.8; 18.4; 19.4; 19.7; 19.9; 20.1
  - Tax revenue: 15.2; 15.8; 16.4; 16.0; 17.9; 18.7; 16.9; 17.5; 17.8; 18.0; 18.2
  - Total expenditure: 27.0; 26.2; 27.6; 28.0; 29.1; 26.9; 26.7; 27.2; 26.9; 27.2; 27.2
  - Overall balance before grants: -10.6; -8.6; -9.5; -10.5; -9.2; -9.3; -8.5; -7.2; -7.5; -7.0; -7.0
  - Grants: 5.2; 5.0; 3.7; 3.6; 4.2; 4.3; 3.3; 2.3; 3.5; 3.0; 3.0
  - Overall balance after grants (cash basis): -6.6; -5.0; -5.8; -6.8; -5.0; -5.0; -5.2; -4.9; -4.0; -4.0; -4.0

### Inflation, exchange rate and monetary developments (Figure 3 and Table 3)
- Inflation (Y-o-Y, percent): Headline and Core series plotted (monthly series from 2005M6 to 2013M12 and 2014M2 shown).
- Contribution to Inflation (Y-o-Y, percent): Food, Fuels, Core.
- Exchange rate Tsh/USD (time series 2005M1–2014M1).
- Effective exchange rates: NEER (ep) and REER (ep), Index 2005 =100.
- Interest rates (percent): Lending, T-Bill, Interbank.
- Money, private sector credit and inflation (percent, Y-o-Y): M3, Private sector credit, Reserve money, Inflation (rhs).
- Table 3 (Billions of TSh, end of period) — Selected items (March/June/Sep/Dec series, 2012–2015):
  - Bank of Tanzania Net foreign assets (examples): 5,385; 5,856; 5,691; 5,797; 5,840; 6,159; 6,092; 6,187; 6,294; 6,306; 6,455; 6,860; 7,183; 7,361
  - Net international reserves (Millions of U.S. dollars): 3,720; 3,968; 3,776; 3,905; 3,840; 4,132; 3,976; 4,216; 4,160; 4,174; 4,256; 4,488; 4,670; 4,752
  - Reserve money (examples): 4,526; 4,716; 4,927; 4,918; 5,152; 5,091; 5,200; 5,028; 5,114; 5,683; 5,862; 5,998; 6,194; 6,457
  - M3 (examples): 14,647; 14,823; 15,307; 15,241; 15,828; 15,933; 16,316; 16,107; 16,550; 17,458; 18,186; 18,644; 19,314; 20,167
  - M3 growth (12-month percent change): 12.5; 14.0; 14.5; 14.9; 12.3; 13.6; 10.8; 10.0; 11.6; 14.5; 14.1; 15.8; 16.7; 15.5
  - Private sector credit growth (12-month percent change): 18.2; 21.1; 17.4; 17.1; 15.2; 15.3; 15.2; 15.3; 16.4; 16.5; 16.3; 15.4; 14.7; 16.0

### Balance of payments and external sector (Table 4)
- Current account (Millions of U.S. dollars): -2,215; -4,736; -4,319; -4,290; -5,085; -4,992; -5,163; -5,281; -5,536; -5,826 (2014/15 Prog. through 2017/18 Proj.)
- Trade balance (Millions of U.S. dollars): -3,115; -5,047; -5,112; -5,091; -5,717; -6,025; -6,373; -6,690; -7,053; -7,625
- Exports, f.o.b. (Millions of U.S. dollars): 4,896; 5,562; 5,888; 5,391; 6,539; 5,516; 6,067; 6,623; 7,257; 7,930
  - Gold exports (examples, Millions of U.S. dollars): 1,787; 2,288; 2,206; 1,899; 2,260; 1,688; 1,679; 1,741; 1,829; 1,961
- Imports, f.o.b. (Millions of U.S. dollars): -8,012; -10,609; -11,000; -10,482; -12,256; -11,541; -12,440; -13,313; -14,310; -15,555
  - Oil imports (Millions of U.S. dollars): -2,155; -3,586; -3,534; -3,923; -3,464; -4,493; -4,404; -4,203; -4,129; -4,057
- Services (net, Millions of U.S. dollars): 171; 883; 165; 481; 767; 819; 591; 1,123; 1,438; 1,756
  - Travel receipts (Millions of U.S. dollars): 1,315; 1,431; 1,643; 1,757; 1,831; 1,945; 2,191; 2,397; 2,639; 2,910
- Gross official reserves (BoT, Millions of U.S. dollars): 3,610; 3,797; 4,233; 4,357; 4,501; 4,633; 5,153; 5,603; 6,087; 6,675
- Current account deficit (percent of GDP): -9.4; -18.4; -14.3; -14.0; -15.2; -14.4; -13.4; -12.3; -11.7; -11.3

### Financial soundness indicators (Figures 4–5, Table 5)
- EAC: Financial Soundness Indicators, 2009–2013 (capital adequacy, return on assets, liquid assets to total assets, NPLs to gross loans) — country series for Burundi, Kenya, Rwanda, Tanzania, Uganda.
- International comparison of macroeconomic fundamentals (Figure 5): GDP Growth average 2004–13 (percent), Average CPI Inflation 2013 (percent), Current Account Balance 2013 (percent of GDP), International Reserves 2013 (months), Fiscal Deficit 2013 (percent of GDP), Public Debt 2013 (percent of GDP). Note: EAC averages exclude Tanzania.
- Table 5 (Financial Soundness Indicators, percent, end of period) — Selected series:
  - Claims on the non-government sector to GDP (calendar year, end period): 18.0; 19.9; 17.2; 18.1; 18.9; 18.5; 20.5; 21.2; 21.9; 22.5; 24.1
  - Capital to risk-weighted assets: 18.5; 17.6; 18.4; 18.0; 17.6; 17.5; 19.5; 18.1; 18.3; 17.9; 19.3
  - Gross nonperforming loans (NPLs) to gross loans: 9.8; 6.7; 7.5; 8.2; 7.5; 8.1; 7.7; 8.1; 7.1; 6.4; 8.3
  - Return on assets: 2.2; 2.5; 3.0; 2.5; 2.7; 2.6; 2.9; 2.7; 2.6; 2.5; 3.0
  - Liquid assets to total assets: 39.5; 36.3; 35.1; 34.6; 34.5; 34.0; 35.0; 34.3; 33.3; 31.7; 32.9

### Selected macroeconomic and fiscal projections (Table 1 highlights)
- National income and prices (selected series, 2010/11 through 2017/18 Proj.):
  - Nominal GDP (in billions of TSh): 34,913; 41,125; 48,264; 48,348; 55,228; 55,559; 63,263; 71,718; 80,801; 90,810
  - Real GDP growth (calendar year, percent): 6.4; 6.9; 7.0; 7.0; 7.2; 7.2; 7.0; 7.1; 7.0; 6.8
  - Consumer prices (period average, percent): 7.0; 17.8; 11.6; 11.3; 7.2; 6.1; 5.1; 5.0; 5.0; 5.0
- External sector (selected series):
  - Exports, f.o.b (in billions of U.S. dollars): 4.9; 5.6; 5.9; 5.4; 6.5; 5.5; 6.1; 6.6; 7.3; 7.9
  - Imports, f.o.b. (in billions of U.S. dollars): 8.0; 10.6; 11.0; 10.5; 12.3; 11.5; 12.4; 13.3; 14.3; 15.6
- Public finance (percent of GDP, selected):
  - Revenue (excluding grants): 16.4; 17.6; 18.1; 17.5; 19.9; 18.4; 19.4; 19.7; 19.9; 20.1
  - Overall balance (including grants, percent of GDP): -6.6; -5.0; -5.8; -6.8; -5.0; -5.2; -4.9; -4.0; -4.0; -4.0
  - Total public debt (percent of GDP): 39.4; 39.8; 41.6; 40.8; 43.3; 41.5; 42.7; 42.2; 42.5; 42.6

*United Republic of Tanzania — material extracted from the IMF staff report (figures, tables and text provided in the source).*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent (and Attachment I. Memorandum of Economic and Financial Policies)

### I. Macroeconomic developments and program performance — Output and inflation
- Growth:
  - Economic growth in 2013: 7.0 percent (compared to 6.9 percent in 2012).
  - Projected overall economic growth in 2014: 7.2 percent.
  - Sectors with highest growth: communications, financial intermediation, construction, wholesale and retail trade, and manufacturing.
  - Downside risks: decline in global prices of traditional exports and gold.

- Inflation:
  - Annual headline inflation: 12.1 percent in December 2012 → 5.6 percent in December 2013; picked slightly to 6.1 percent in March 2014.
  - Annual core inflation: 8.9 percent in December 2012 → 4.5 percent in December 2013; picked slightly to 4.7 percent in March 2014.
  - Projection: Inflation is projected to reach the medium term target of 5 percent by end-2014.
  - Upward risks: increase in power tariffs (contributed to uptick in January 2014), food supply situation in other EAC/SADC countries, uncertainty in the MENA countries affecting oil prices.

### I. Macroeconomic developments and program performance — External sector
- Current account:
  - Current account deficit in 2013: US$4.7 billion (compared to US$3.5 billion in 2012).
  - Drivers: decline in world market prices of gold and major traditional exports, higher oil import volumes.
  - Services receipts supported by high tourist arrivals.
  - Outlook: exports expected to maintain moderate increase (travel, manufacturing, transportation); import growth expected subdued due to projected decline in oil prices.
  - Risks: projected decline in gold prices; continued low prices of major traditional exports (cotton and coffee).
  - Projection: current account balance projected to record a deficit of 14.5 percent of GDP in FY2013/14 and gradually shrink subsequently as domestic gas powered electricity generation reduces demand for imported petroleum products.

### I. Macroeconomic developments and program performance — Fiscal performance and financing in FY2012/13
- Fiscal deficit:
  - Overall fiscal deficit of the central government in 2012/13: 6.8 percent of GDP.
  - Revenues: below budget projections and short of program target by 0.6 percent of GDP.
  - Income taxes: strong performance due to enhanced collection efforts and recovery of tax arrears.
  - Total expenditure: higher than program target by 0.4 percentage points of GDP.
  - Stock of domestic unpaid claims (older than 90 days): rose to 1.0 percent of GDP at end-June 2013 from 0.5 percent of GDP the previous year.

- Foreign financing:
  - Net foreign financing disbursements: 0.3 percent of GDP lower than program projections.
  - External non-concessional loan contracting during FY2012/13: US$2,000 million (US$1.2 billion for gas pipeline; US$600.5 million from international capital markets in a private placement).
  - Cumulative contracting from July 1, 2010 through June 2013: US$2,614 million.

- Domestic financing:
  - Net domestic financing of the government budget: TShs 1,069 billion, in excess of the SCF performance criterion at end June 2013 by 1.2 percent of GDP (largely used to offset lower revenues 0.7 percent of GDP and finance additional domestic expenditure 0.4 percent of GDP).

- Government debt:
  - Total public debt stock at end of 2012/13: $14,624.9 million or 47.1 percent of GDP.
  - Public external debt: $10,215.9 million, equivalent to 32.9 percent of GDP; remainder is domestic debt.
  - Present value public external debt to GDP ratio (government’s debt sustainability analysis) at end of 2012/13: 19.5 percent (below 50 percent threshold used by IMF and World Bank).

### I. Macroeconomic developments and program performance — Monetary policy
- Policy stance and outcomes:
  - Tight monetary policy contributed to disinflation.
  - Exchange rate depreciation: average of 3.7 percent since December 2012.
  - Monetary aggregate growth for December 2013: M3 grew at 10.0 percent (projected 10.8 percent); private sector credit grew at 15.3 percent (projected 15.2 percent).

### I. Macroeconomic developments and program performance — Financial sector and capital account
- Banking sector soundness:
  - Core capital to total risk weighted assets at end-2013: 17.6 percent (regulatory minimum: 10 percent).
  - Non-performing loans: declined to 6.5 percent at end-2013 from 8.1 percent at end-2012.
  - Compliance with new minimum capital requirement: TZS 15 billion (previous requirement TZS 5 billion) ahead of February 2015 deadline.
  - Financial innovation: branchless banking (agent banking), micro-finance, technological innovations.
  - Enterprise Growth Market (EGM) launched: September 2013 to allow small business access to capital market.

- Portability of pensions:
  - August 2013: SSRA issued guidelines on Social Security Schemes to address members subject to multiple schemes, protecting benefit rights.

- East Africa Payment System (EAPS):
  - Linkage of RTGS among Tanzania, Kenya, Uganda; EAPS went live in November 2013 between these three countries; Rwanda and Burundi to join soon.
  - Expected effect: enhance trade by speeding payments using members’ domestic currencies.

- Capital account liberalization:
  - Liberalized to East African Community (EAC) residents to allow freer movement of capital within the region.
  - Government committed to full capital account liberalization with the rest of the world by December 2015 (in line with EAC Common Market Protocol).

- Anti-Money-Laundering:
  - Implementation of remaining action plan on UNSCR 1267/1373 obligations related to identification and freezing of terrorist assets.
  - Prevention of Terrorism Act amended in November 2013; Regulations aligned to provide procedures to identify and freeze terrorist assets.

### I.B Program performance leading to completion of the final SCF review
- Quantitative performance criteria (PCs):
  - All quantitative PCs under the SCF for end-June 2013 were met except the ceiling on Net Domestic Financing (NDF) of the Government, missed by 1.2 percent of GDP.
  - Cumulative increase in net international reserves (NIR) exceeded program floor by a good margin.
  - Government actions in response to missed NDF target:
    - Revisions to 2013/14 budget in mid-year review, including downward adjustments to revenue projections and expenditure cuts of almost 2 percent of GDP to goods and services.
    - Cabinet approval for main features of a VAT reform to be submitted to Parliament by June 2014.
    - Implementation of electricity tariff increases averaging around 40 percent on January 1, 2014 to improve TANESCO’s finances and reduce budget subsidies.

- Indicative targets and structural benchmark:
  - Most indicative targets for end-September and December 2013 were met, except: December 2013 target on average reserve money (missed by a small margin) and September and December 2013 indicative targets on revenues.
  - VAT reform benchmark (submission to parliament by November 2013) missed; Cabinet approved VAT policy paper and draft bill shared with stakeholders; government committed to sending VAT reform bill to parliament during May/June 2014 session for approval prior to 2014/15 fiscal year.

### II. The economic program for 2014/15 and the medium term — Objectives and social context
- Social and poverty indicators:
  - Based on 2011/12 Household Budget Survey, poverty headcount declined from 33.6 percent in 2007 to 28.2 percent in 2011/12.
  - Government continues implementation of MKUKUTA II (July 2010-June 2015) and the Five Year Development Plan (2011/12-2015/16); considering harmonizing them into a single framework.

### II.A Monetary and exchange rate policies (program for 2014/15 and medium term)
- Monetary policy stance for 2014/15:
  - Bank will maintain current stance to guard against upward inflation risks and reduce second round effects of power tariff adjustment.
  - Targets/projections:
    - Average reserve money growth targeted at 13.9 percent for end June 2015.
    - M3 projected to grow by 15.5 percent.
    - Private sector credit growth room estimated at 16.0 percent.

- Modernizing monetary policy framework:
  - Move towards an interest rate based framework in the medium term.
  - Initial steps: study relationship between excess reserves and short-term interest rates; strengthen transmission mechanism including a better-functioning interbank cash market.
  - Ultimate aim: use daily BoT operations to maintain interbank cash market rates within a pre-announced target range.

- Exchange rate policy:
  - Further enhance exchange rate flexibility; BoT to participate in FX market only for liquidity management and smoothing short-term fluctuations.
  - Objective: attain minimum gross international reserves equivalent to 4 months of imports of goods and services at end-June 2015 (in line with the Bank of Tanzania Act).

- Banking supervision framework:
  - Review and development of regulations to incorporate financial sector developments and best practices.
  - 2008 regulations reviewed and revised versions submitted to the Attorney General’s Office on 3rd June 2014; consolidated supervision regulations also submitted on the same date.
  - BoT developing new regulations covering mergers and acquisitions, bank holding companies, and Islamic banking.

### II.B Fiscal policies — Developments in 2013/14 and budget for 2014/15
- Implementation of 2013/14 budget:
  - Government committed to overall deficit after grants equivalent to 5.2 percent of GDP in 2013/14.
  - Withholding portion of budgetary allocations due to tax revenue and foreign financing shortfalls; Cabinet approved expenditure reduction in mid-year review.

- Prevention and reduction of arrears:
  - Measures taken:
    - Identification, verification, and clearance of significant portion of longstanding domestic arrears.
    - Halt in contracting new multi-year projects solely financed by domestic resources in key ministries.
    - Establishment of high-level committee on arrears (MoF, BoT, Planning Commission, Ministry of Works, Accountant General).
    - Accounting Officers directed to use IFMS generated local purchase orders to avoid awarding unfunded tenders.
  - Preliminary estimate of outstanding unpaid claims (duration above 90 days): TSh1,098 billion at end-March 2013.
  - Government objective: no further net increase in stock of unpaid claims and to start reducing it.
  - Allocation included in 2014/15 budget with priority to clearing oldest arrears; if tax revenues exceed program assumptions (indicative target in Table 1), overage will be devoted to accelerated net reduction of domestic arrears.

- Budget for 2014/15 and medium-term fiscal stance:
  - Fiscal policy objective: foster growth and ensure debt sustainability; continued deficit reduction.
  - Budget deficit (including grants) for 2014/15 expected: 4.9 percent of GDP.
  - Context: declining budget support grants; domestic revenue effort via VAT and other tax reforms and enhanced revenue administration.
  - Allows moderate increase in expenditures as share of GDP compared to likely 2013/14 outturn, with focus on development spending and allocation for net reduction of domestic arrears.

- Revenue mobilization (medium term):
  - Measures include:
    - Build-up of staff capacity in specialized sectors (oil and gas, coal, mining, real estates, communications, multinationals & financial services).
    - Enhanced use of Electronic Fiscal Devices.
    - Widening tax base by formalizing more businesses.
    - Review of Public Finance Act (PFA) and consequential legislation affecting collection of non-tax revenues.

- Expenditure priorities:
  - Scale-up implementation of key development projects: power generation and transmission, agriculture and irrigation, railroads.
  - Commitment to use external non-concessional borrowing for infrastructure projects only.
  - Improvement of critical social services through targeting a minimum level of priority social spending (indicative target).

### II.C Public finance management
- Management of domestic arrears and payment systems:
  - Continued establishment and verification of arrears stock, development of arrears liquidation strategy.
  - Payment to be effected through central budget allocation after IAG verification of genuineness.
  - Preventive measures:
    - Realistic revenue projections.
    - Align project budget allocations with projected implementation plans.
    - Strengthened commitment controls: MDAs required to register all commitments in IFMIS, including multi-year contracts, allowances, and utility payments.
    - Improvements underway in cash forecasting and management to ensure liquidity to meet payments.
  - Public Expenditure Review with East AFRITAC support: survey of payment arrears as of end-March 2014 begun and expected to be completed before end-September (to identify measures to strengthen reporting, management, and liquidation strategy of payment arrears).

*Source: Appendix I. Letter of Intent and Attachment I. Memorandum of Economic and Financial Policies (June 27, 2014).*

### 28. With technical support from the World Bank, East Afritac and the MEFMI, in September

### _cr14228 - 28. With technical support from the World Bank, East Afritac and the MEFMI, in September

### Public debt management and legislation
- A debt sustainability analysis (DSA) covering both domestic and external debt was conducted in September 2013 with technical support from the World Bank, East Afritac and the MEFMI.
- DSA findings are intended to serve as key inputs for the country’s new Public Debt Management (PDM) Strategy to guide government borrowing policy going forward.
- The medium-term debt strategy (MTDS) was updated in November 2013 with support from a joint IMF-World Bank technical assistance mission.
- Revision of the Loans, Guarantees and Grants Act is underway to:
  - incorporate provisions to insure a greater control of public indebtedness growth;
  - limit fiscal risks stemming from contingent liabilities;
  - include a yearly ceiling on the amount of direct public borrowing;
  - limit the amount of loan guarantees the Government can grant to Public authorities and other bodies (PA&OBs);
  - provide greater MOF control of PPP-financed projects that may have fiscal implications.
- The Government expects to finalize and submit the draft new Loan, Guarantees and Grants Act to Cabinet by 2014/15.

### Monitoring and management of fiscal accounts in the public sector
- Budget documents:
  - The Ministry of Finance (MoF) will publish on the Ministry’s website the complete 2014/15 budget documents (Volumes II–IV) as submitted and approved by the Parliament by May and August, 2014 respectively.
  - The MoF will publish the 2013/14 Reallocation warrants as passed by the Parliament and the summary 2014/15 “citizens’ budget” by August 30th 2014.
  - The MoF will continue to publish these documents annually.
- Public enterprise financial statements:
  - Annual Treasury Registrar Statements transmitted to Parliament and published will be made more comprehensive by including tabular information on each parastatal’s revenues, expenditures, and profits and losses beginning with the September 2014 statements for the year ended June 30th, 2014.
- Guarantees:
  - The Government compiles and shares with IMF staff a report of all government guarantees semi-annually.
  - New guarantees during FY2013/14 amount to about US$ 200 million.
- Public finance legislation:
  - An Amendment to the Public Finance Act is being prepared to improve management and control of public funds, ensure compliance with generally accepted international accounting standards, and harmonize legislation with other East African Community Partner States.
  - A Cabinet Paper for the proposed Amendment will be submitted to Cabinet in June 2014.
  - A new Budget Act is being prepared to strengthen budget formulation, scrutiny, execution, monitoring, controls, transparency, and accountability; the draft bill is expected to be tabled to the Parliament in FY2014/15.
- Migration to IPSAS accrual accounting:
  - The Government is committed to migrate from IPSAS cash accounting to IPSAS accrual accounting.
  - Implementation of the five year action plan (2012/2013-2016/2017) is under way.
  - Financial Statements for FY2012/13 have been completed.
- Program-based budgeting:
  - Efforts are under way to plan, authorize, execute, and monitor budgetary expenditures in terms of programs, focusing on outcomes and outputs.

### Fiscal aspects of energy and pensions
- Power sector (TANESCO):
  - EWURA announced an electricity tariff increase by 40 percent on average, effective January 1, 2014.
  - A new tariff structure that periodically adjusts to inflation and changes in oil prices and the exchange rate became effective.
  - TANESCO borrowed an amount equivalent to US$250 million commercially during the current fiscal year (of which about US$84 million in foreign currency) and received a direct budget transfer of TSh124 billion from the World Bank’s First Power and Gas Sector DPO approved in the latter part of FY2012/13.
  - An additional US$170 million (financed by the WB’s Second DPO, the African Development Bank, and the government’s own resources) is expected to be transferred to TANESCO in the current fiscal year.
  - TANESCO is projected to become profitable starting in 2015, when costs of power generation are projected to fall with the completion of a new gas pipeline and gas-fueled power plants.
- Fiscal framework for managing revenues from natural gas:
  - The Government has developed a Natural Gas Policy and is committed to further developing a comprehensive policy and legal framework, including a natural gas revenue management framework fully integrated with the budget and underpinned by a Natural Gas Revenue Fund.
  - The Government will draft a policy on fiscal management of gas revenues (submission to cabinet: structural benchmark for December 2014).
  - The Government will review the fiscal regime (including tax—notably, the Income Tax Act; production-sharing; and other non-tax instruments) to ensure consistency with major new investments in the sector.
  - The Government intends to enhance transparency, including improving disclosure of contracts signed with natural gas companies consistent with Extractive Industries Transparency Initiative standards.
- Pension system:
  - The Government is considering options to address outstanding liabilities to the Public Service Pension Fund and future pension obligations to pensioners who accumulated rights under the pre-1999 non-contributory system.
  - Options being explored include:
    - revisiting benefit formulas and contribution rates of all schemes;
    - merging various existing pension schemes into one to improve administrative and investment efficiency;
    - improving investment opportunities while complying with investment guidelines.
  - Approval of the Harmonization Guidelines, containing the proposed reform of benefit structure and parameters for all pension funds, is envisaged by September 2014.

### Complementary reforms to improve business environment
- The competitiveness agenda aims to attract private investment to generate growth and employment through:
  - infrastructure development;
  - institutional and legal reforms;
  - reduction of red tape;
  - improving access of small and medium enterprises to credit.
- A policy and legal framework to support the PPP model has been developed to provide long-term value to infrastructure sectors.
- Big Results Now initiative:
  - A new “lab” on improving the business environment has been added.
  - The lab worked on six priority areas: 1) realigning regulations and institutions; 2) access to land, security of tenure; 3) taxation, multiplicity of levies and fees; 4) curbing corruption; 5) labor law and skill-set; and 6) contract enforcement, law and order.
  - The lab concluded a preliminary report with specific recommendations that are being evaluated, prioritized and costed for subsequent submission to the cabinet.

### Statistical issues
- Fiscal and external statistics:
  - The Government compiled annual fiscal data for 2012/13 in Government Finance Statistics Manual (GFSM) 2001 format and submitted them to the IMF for publication in October, 2013.
  - Compilation of quarterly provisional fiscal outturns in the GFSM 2001 format is underway.
  - In the medium term the Government will improve data on public sector financial and nonfinancial assets, including valuation and verification of non-financial assets.
- Foreign direct investment data:
  - The annual Survey of Companies with Foreign Liabilities (SCFL) was conducted from June–August 2013 to compile data for 2012.
  - Results: FDI inflows of US$1.8 billion in 2012 compared to US$1.3 billion in 2011.
  - FDI data from the survey have been incorporated in the BOP statement.
  - Preparations are underway to conduct the SCFL to collect FDI data for 2013.
- Bank of Tanzania (BoT) data initiatives:
  - BoT is developing a centralized database through the BoT Data Warehouse Project to eliminate multiple databases and improve efficiency in statistical compilation.
  - The project is expected to be completed by December 2017.

### Program monitoring: quantitative assessment criteria, indicative targets and structural benchmarks
- Monitoring framework:
  - Implementation will be monitored through semiannual reviews based on assessment criteria (AC), indicative targets (IT) and structural benchmarks.
  - Assessment criteria for end-June 2014, end-December 2014 and end-June 2015, and indicative targets for end-September 2014 and end-March 2015 are set as per Table 1.
  - The first, second and third reviews under the PSI are expected to take place by December 31, 2014, June 30, 2015, and December 31, 2015 respectively.
- Selected quantitative targets and memorandum items (values presented as in source table):
  - Net domestic financing of the government of Tanzania (cumulative, ceiling): 793 143 286 429 572 (June, Sept, Dec, March, June columns respectively).
  - Average reserve money (upper bound): 5,685 5,903 6,033 6,219 6,473.
  - Average reserve money target: 5,629 5,845 5,973 6,158 6,409.
  - Average reserve money (lower bound): 5,573 5,786 5,913 6,096 6,345.
  - Tax revenues (floor; indicative target): 9,410 2,775 5,550 8,324 11,099.
  - Priority social spending (floor; indicative target): 2,200 600 1,200 1,800 2,400.
  - Accumulation of external payment arrears (continuous AC ceiling): 268 823 144 965 78.
  - Contracting or guaranteeing of external debt on nonconcessional terms (continuous AC ceiling): 0 0 0 0 0.
  - Cumulative ENCB ceiling (nonconcessional borrowing) from January 1, 2014 through June 30, 2016: 2,420 2,420 2,420 2,420 2,420.
  - Memorandum item – Foreign program assistance (cumulative grants and loans): 907 384 572 675 713.
  - External nonconcessional borrowing (ENCB) disbursements to the budget: 675 225 450 675 900.
- Notes and adjustment clauses (as presented):
  - For precise definitions of aggregates and adjustment clauses, see the Technical Memorandum of Understanding (TMU).
  - The figure for end-June 2014 is the authorities' projection and is not an AC for the purposes of the first review.
  - To be adjusted upward by up to TSh 300 billion for the U.S. dollar equivalent of a shortfall in the combined total of foreign program assistance and ENCB from the amounts shown in the memorandum item. To be adjusted downward by any ENCB disbursed for budget financing above programmed amount for the year as a whole.
  - Floor will be adjusted downward by the amount in U.S. dollars of any shortfall in foreign program assistance and ENCB financing of the government up to the equivalent of TSh 300 billion.
  - The cumulative ENCB ceiling of US$2,420 million applies from January 1, 2014 through June 30, 2016.
  - Assessment/performance criteria and indicative targets apply to upper bound only.
  - Cumulative from the beginning of the fiscal year (July 1).

### Technical Memorandum of Understanding (TMU) — selected concepts and definitions
- Purpose:
  - Describes concepts and definitions used in monitoring the PSI (quantitative assessment criteria, indicative targets and structural benchmarks).
- Principal data sources:
  - Standardized reporting forms, 1SRF and 2SRF, provided by the Bank of Tanzania (BoT) to the IMF, and government debt tables from the Accountant General’s office.
- Net international reserves (NIR):
  - NIR of the BoT are defined as reserve assets minus reserve liabilities.
  - Change in NIR is calculated as the cumulative change since the beginning of the fiscal year.
  - BoT reserve assets (per IMF BOP manual, 5th edition and SDDS reserve template) include: (i) monetary gold; (ii) holdings of SDRs; (iii) the reserve position at the IMF; (iv) all holdings of foreign exchange; and (v) other liquid and marketable assets readily available to the monetary authorities.
  - Reserve assets exclude assets pledged or otherwise encumbered, including assets used as collateral or guaranteed for a third party external liability.
  - BoT reserve liabilities include: (i) all short-term foreign exchange liabilities to nonresidents, of original maturities less than one year; and (ii) outstanding purchases and loans from the IMF.
  - NIR are monitored in U.S. dollars; assets and liabilities in other currencies shall be converted into dollar equivalents using the exchange rates as of March 31, 2014 (as recorded in the BoT balance sheet).
- Exchange rates (US$ per currency unit, as in source):
  - British pound 1.6649
  - Euro 1.3787
  - Japanese yen 0.0097
  - Australian dollar 0.9236
  - Canadian dollar 0.9082
  - Chinese yuan 0.1608
  - SDR 1.5456
- Reserve money and reserve money band:
  - Reserve money is the sum of currency issued by the BoT and the deposits of Other Depository Corporations (ODCs) with the BoT.
  - Reserve money targets are projected daily averages of March, June, September, and December within a symmetrical one percent band.
  - The upper bound of the band for June and December serves as the assessment criterion and for March and September, the indicative target.
- Net domestic financing of the Government of Tanzania (NDF):
  - NDF includes financing of the budget of the central (union) government by the banking system (BoT and ODCs) and the nonbank public.
  - NDF is calculated as the cumulative change since the beginning of the fiscal year in the sum of:
    - (i) loans and advances to the government by the BoT and holdings of government securities and promissory notes (including liquidity paper issued for monetary policy purposes), minus all government deposits with the BoT;
    - (ii) all BoT accounts receivable due from the Government not included under (i);
    - (iii) loans and advances to the government by other depository corporations and holdings of government securities and promissory notes, minus all government deposits held with other depository corporations;
    - (iv) the outstanding stock of domestic debt held outside depository corporations, excluding: government debt issued for the recapitalization of the NMB and TIB; debt swaps with COBELMO (Russia) and the government of Bulgaria; mortgage on acquired sisal estates; compensation claims; and debt of parastatal companies assumed by the government.

*Italic line: UNITED REPUBLIC OF TANZANIA — INTERNATIONAL MONETARY FUND*

### 8. NDF will be measured net of any accumulation of central government claims on the

### _cr14228 - 8. NDF will be measured net of any accumulation of central government claims on the

### NDF measurement and central government claims
- NDF will be measured net of any accumulation of central government claims on the Tanzania Petroleum Development Corporation (TPDC) as a result of the on-lending of an external credit to finance a gas pipeline.

### Government deposits at the BoT
- Government deposits at the BoT include:
  - government deposits as reported in the BoT balance sheet, 1SR—including counterpart deposits in the BoT of liquidity paper issued for monetary policy purposes;
  - foreign currency-denominated government deposits at the BoT, including the PRBS accounts and the foreign currency deposit account.

### External payment arrears
- Definition:
  - Total amount of external debt service obligations (interest and principal) of the government and the BoT that have not been paid at the time they are due.
  - Excludes arrears on external debt service obligations pending the conclusion of debt-rescheduling arrangements.
- Operational detail:
  - The ceiling on external payment arrears is continuous and applies throughout the year.

### Priority social spending
- Comprises:
  - spending on agricultural inputs;
  - central government transfers to local governments for health and education.

### Tax revenues
- Include:
  - import duties;
  - value-added tax;
  - excises;
  - income tax;
  - other taxes.

### Contracting or guaranteeing of external debt on nonconcessional terms
- Definitions and scope:
  - “External debt” as per Point 9 of the Guidelines on Performance Criteria with Respect to External Debt (Executive Board’s Decision No. 6230-(79/140), as amended by Decision No. 14416-(09/91), effective December 1, 2009).
  - External debt determined on the basis of currency of denomination of the debt.
  - Government external debt is outstanding debt owed or guaranteed by:
    - the Government of Tanzania;
    - the Bank of Tanzania;
    - subnational governments;
    - companies in which the government has at least 50 percent ownership, unless otherwise stipulated.
  - Exclusions (for these purposes, except if the government offers an explicit guarantee on the debt): Tanzania Investment Bank; Tanzania Port Authority; Tanzania Petroleum Development Corporation; National Development Corporation; National Housing Corporation; Tanzania Airport Authority.
- Continuous constraint:
  - The ceiling on contracting and guaranteeing external nonconcessional debt is continuous and applies throughout the year.

### Nonconcessional classification and assessment criterion
- Government debt is considered nonconcessional if the grant element is lower than 35 percent, computed using a discount rate of 5 percent.
- The PSI assessment criterion applies to:
  - debt as defined in Point 9 of the Guidelines;
  - commitments contracted or guaranteed for which value has not been received.

### Foreign program assistance and program exchange rate
- Foreign program assistance is defined as:
  - budget support and basket grants and loans received by the Ministry of Finance (MoF) through BoT accounts and accounts at other depository corporations;
  - calculated as the cumulative sum, since the beginning of the fiscal year, of the receipts from (i) program loans and (ii) program grants.
  - Program assistance does not include nonconcessional external debt as defined in paragraphs 13 and 14.
- Program exchange rate:
  - The program exchange rate is TSh/USD1,649.

### Adjusters — Net international reserves (NIR)
- End-of-quarter quantitative targets for the change in the BoT’s net international reserves will be adjusted downward by the amount in U.S. dollars of any shortfalls in:
  - (a) foreign program assistance; and
  - (b) external nonconcessional borrowing (ENCB) financing of the government budget in U.S. dollars (up to a limit equivalent to TSh 300 billion at the program exchange rate).
- Calculation details:
  - Shortfalls calculated relative to projections for foreign program assistance shown in the table attached to the applicable Letter of Intent and MEFP titled “Quantitative Assessment Criteria, and Indicative Targets under the Policy Support Instrument”.
  - For the adjuster, ENCB is measured excluding any non-concessional financing contracted for the gas pipeline.
  - Each quarterly shortfall converted from U.S. dollars to Tanzanian shillings using the program exchange rate (TSh/USD1,649).
  - The cumulative shortfall is the sum of all quarterly shortfalls in Tanzanian shillings from the beginning of the fiscal year up to the date of assessment.

### Adjusters — Net domestic financing (NDF)
- End-of-quarter quantitative limits on the net domestic financing of the Government of Tanzania will be adjusted upward for any shortfalls in the combined total of foreign program assistance and ENCB financing of the government budget in U.S. dollars (up to a limit of TSh 300 billion).
- Calculation details:
  - Shortfalls calculated relative to projections for foreign program assistance and ENCB financing shown in the Table on “Quantitative Assessment Criteria and Indicative Targets under the PSI” attached to the MEFP.
  - For the adjuster, ENCB is measured excluding any non-concessional financing contracted in for the gas pipeline.
  - Each quarterly shortfall converted from U.S. dollars to Tanzanian shillings using the program exchange rate (TSh/USD1,649).
  - The cumulative shortfall is the sum of all quarterly shortfalls in Tanzanian shillings from the beginning of the fiscal year up to the date of assessment.
  - Limits will be adjusted downward for any ENCB financing of the government budget in excess of the amount programmed for the year as a whole (as indicated in the referenced table).

### Data reporting requirements (summary of key items and timelines)
- Reporting institutions, frequency, submission lags (selected entries preserved verbatim):
  - Issuance of government securities. — BoT — Bi-weekly — 1 week
  - Yields on government securities. — BoT — Bi-weekly — 1 week
  - Daily excess reserves of commercial banks — BoT — Weekly — 1 week
  - Daily data on transactions through IFEM by exchange rate and volume, separating BoT and commercial bank transactions — BoT — Weekly — 1 week
  - Daily data on reserve money and its components — BoT — Daily — 1-day
  - Consumer price index. — NBS — Monthly — 2 weeks
  - Annual national account statistics in current and constant prices. — NBS — Annually — 6 months
  - Quarterly national account statistics in constant prices. — NBS — Quarterly — 3 months
  - Balance sheet of the BoT (1SRF) and the currency composition of official foreign assets and official foreign liabilities. — BoT — Monthly — 1 week
  - Consolidated accounts of other depository corporations and the depository corporations survey (2SRF and the DCS). — BoT — Monthly — 4 weeks
  - Summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor. — MoF — Monthly — 2 weeks
  - External trade developments. — BoT — Monthly — 4 weeks
  - Balance of payments — BoT — Quarterly — 4 weeks
  - Standard off-site bank supervision indicators for other depository corporations. — BoT — Quarterly — 6 weeks
  - Financial Soundness Indicators for other depository corporations. — BoT — Quarterly — 6 weeks
  - Other depository corporation lending by activity. — BoT — Monthly — 4 weeks
  - Commercial banks interest rate structure. — BoT — Monthly — 4 weeks
  - Summary table of: (i) average reserve money; (ii) net domestic financing of the government; (iii) stock of external arrears; (iv) new contracting or guaranteeing of external debt on nonconcessional terms; and (v) net international reserves. — BoT and MoF — Monthly — 4 weeks
  - Amount of payment claims outstanding of more than 30 days, 60 days, and 90 days for all government ministries (broken down by unverified claims and claims verified but not yet paid). — MoF/AGD — Quarterly — 4 weeks
  - Flash report on revenues and expenditures. — MoF/AGD — Monthly — 4 weeks
  - TRA revenue report — TRA — Monthly — 4 weeks
  - Monthly domestic debt report. — MoF — Monthly — 4 weeks
  - Monthly report on central government operations. — MoF — Monthly — 4 weeks
  - Detailed central government account of disbursed budget support grants and loans, and ENCB, and external debt service due and paid. — MoF — Monthly — 4 weeks
  - Detailed central government account of disbursed donor project support grants and loans. — MoF — Monthly — 4 weeks
  - Statement on new external loans contracted and guarantees provided by the entities listed in paragraph 14 of the TMU during the period including terms and conditions according to loan agreements. — MoF — Quarterly — 4 weeks
  - Report on priority social spending — MoF — Quarterly — 6 weeks
- Reconciliation note:
  - The MoF and BoT will reconcile data on BoT claims on the government to ensure that such claims recorded in the BoT balance sheet are the same as those reported by the Accountant General of the MoF.

### Press Release highlights and program context (selected quantitative and policy points)
- IMF Executive Board approved a new three-year Policy Support Instrument (PSI) for Tanzania (Press Release No. 14/350, July16, 2014).
- Macroeconomic projections and indicators (selected figures preserved verbatim):
  - Real GDP growth projected at 7 percent in 2014 and in the medium term.
  - Inflation is at 6 percent, projected to gradually converge to the authorities’ 5 percent medium-term objective.
  - External current account deficit at 14 percent of GDP this year.
  - Overall fiscal deficit in 2014/15 projected at 4.9 percent of GDP.
  - Tanzania remains at low risk of debt distress based on the debt sustainability analysis.
  - Potential revenues from offshore extraction of natural gas likely to start in the early 2020s.
- Policy priorities emphasized:
  - Continue fiscal adjustment while opening up room for spending on infrastructure and social services.
  - Mobilize additional revenues and improve public financial management, including addressing domestic arrears.
  - Develop a comprehensive framework to manage natural resource wealth ensuring full integration of resource revenues in the budget and institutionalize transparency and accountability of spending decisions.
  - Maintain prudent monetary policy to preserve inflation in mid-single digits and gradually move toward interest rates as the main policy tool.
  - Strengthen the financial stability framework to keep pace with sector development and innovations such as mobile banking.

### Selected table excerpts — macroeconomic and fiscal indicators (selected figures preserved verbatim)
- Program exchange rate:
  - Exchange rate (eop, T Sh per U.S. dollar): 1,649 (2014/15 prog.)
- Selected fiscal and external ratios (percent of GDP, selected years and entries preserved verbatim):
  - Revenue (excluding grants): 19.9 (2014/15 prog.)
  - Total grants: 4.2 (2014/15 prog.)
  - Expenditure: 29.1 (2014/15 prog.)
  - Overall balance (excluding grants): -9.2 (2014/15 prog.)
  - Overall balance (including grants): -5.0 (2014/15 prog.)
  - Domestic financing (excluding gas pipeline financing): 1.0 (2014/15 prog.)
  - Total public debt: 43.3 (2014/15 prog.)
  - Current account balance (including current transfers): -15.2 (2014/15 prog.)
  - Gross official reserves (end of period): 4.5 (2014/15)
  - Nominal GDP (in billions of TSh): 55,228 (2014/15 prog.)
  - Real GDP growth (calendar year): 7.2 (2014/15 proj.)
  - Consumer prices (period average): 7.2 (2014/15 prog.)
  - Exports, f.o.b (in billions of U.S. dollars): 6.5 (2014/15 proj.)
  - Imports, f.o.b. (in billions of U.S. dollars): 12.3 (2014/15 proj.)
  - Current account balance (excluding current transfers; deficit= -) (Billions of U.S. dollars): -5.7 (2014/15)
  - Gross official reserves (end of period) (Billions of U.S. dollars): 4.5 (2014/15)

*Excerpted and summarized from the IMF country documents contained in the provided content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14228.pdf_